Fracking and the next financial crisis

By Felicity Duncan.As the questions and plans and controversies around fracking in the Karoo wind on, it was interesting to read an op-ed arguing that fracking in America – often held up as a success story in the industry – may not be as good as it seems..Specifically, the author, who has written a book about Enron, details how hedge fund types on Wall Street think that fracking is little more than a sham. Few, very, very few fracking operations generate enough cash to cover their operating costs. Most rely on an endless stream of funding that Wall Street seems happy to supply. The problem, she writes, is that fracked oil wells decline fast. The amount of oil produced in the second year is much lower than that produced in the first, and it never recovers. Massive investment is needed to build an operation, and few fracking groups manage to make enough in the first, truly productive year to offset the costs of funding a well whose output declines as much as 85% in the first three years..___STEADY_PAYWALL___.Unless the costs of fracking fall or scientists find ways to maintain the productivity of fracked wells, it just might be good for SA that the Karoo remains unfracked. Of course, if the hundreds of billions of dollars that US fracking companies have borrowed never get repaid, well, that will be bad for all of us..In Premium today, you can listen to Alec Hogg talk to Chris Steyn, the co-author of the controversial book, The Lost Boys of Bird Island. It's an emotional interview and a must-listen. You can also learn why firms like KPMG seem untouchable and why the office is just like high school (and why that's a problem).

Fracking and the next financial crisis

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